|
on Central and Western Asia |
| By: | Saef, Danial; Nagy, Odett; Sizov, Sergej; Härdle, Wolfgang |
| Abstract: | While attention is a predictor for digital asset prices, and jumps in Bitcoin prices are well-known, we know little about its alternatives. Studying high frequency crypto data gives us the unique possibility to confirm that cross market digital asset returns are driven by high frequency jumps clustered around black swan events, resembling volatility and trading volume seasonalities. Regressions show that intra-day jumps significantly influence end of day returns in size and direction. This provides fundamental research for crypto option pricing models. However, we need better econometric methods for capturing the specific market microstructure of cryptos. All calculations are reproducible via the quantlet.com technology. |
| Keywords: | jumps,market microstructure noise,high frequency data,cryptocurrencies,CRIX,option pricing |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:irtgdp:2021019&r= |
| By: | Despina Gavresi (University of Ioannina); Anastasia Litina (Department of Economics, University of Macedonia) |
| Abstract: | This paper explores the interplay between past exposure to macroeconomic shocks and populist attitudes. We document that individuals who experienced a macroeconomic shock during their impressionable years (between 18 and 25 years of age), are currently more prone to voting for populist parties, and manifest lower trust both in national and European institutions. We use data from the European Social Survey (ESS) to construct the differential individual exposure to macroeconomic shocks during impressionable years. Our findings suggest that it is not only current exposure to shocks that matters (see e.g., Guiso et al. (2020)) but also past exposure to economic recessions, which has a persistent positive effect on the rise of populism. Interestingly, the interplay between the two, i.e., past and current exposure to economic shocks, has a mitigating effect on the rise of populism. Individuals who were exposed to economic shocks in the past are less likely to manifest populist attitudes when faced with a current crisis, as suggested by the experience-based learning literature. |
| Keywords: | Macroeconomic Shocks, Trust, Attitudes, Populism |
| JEL: | D72 E60 F68 P16 Z13 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:mcd:mcddps:2021_15&r= |
| By: | Tobias Berg; Andreas Fuster; Manju Puri |
| Abstract: | In this paper, we review the growing literature on FinTech lending – the provision of credit facilitated by technology that improves the customer-lender interaction or lenders’ screening and monitoring of borrowers. FinTech lending has grown rapidly, though in developed economies like the U.S. it still only accounts for a small share of total credit. An increase in convenience and speed appears to have been more central to FinTech lending’s growth than improved screening or monitoring, though there is certainly potential for the latter, as is the case for increased financial inclusion. The COVID-19 pandemic has shown potential vulnerabilities of FinTech lenders, although in certain segments they have displayed rapid growth. |
| JEL: | G2 G20 G21 G23 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29421&r= |
| By: | Greg Buchak; Jiayin Hu; Shang-Jin Wei |
| Abstract: | A binding interest rate cap on household savings is a common form of financial repression in developing economies and typically benefits banks. Using proprietary data from a leading Chinese FinTech company, we study Fintech's role in ending financial repression in China through the introduction of a money market fund with deposit-like features available through an already widely-adopted household payment platform. Cities and banks whose depositor base is more exposed to FinTech see greater deposit outflows. Importantly, exposed banks respond to FinTech competition by offering competing products with market interest rates. FinTech thus facilitates a bottom-up interest rate liberalization. |
| JEL: | E21 E42 E43 E44 E52 E58 G21 G28 G51 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29448&r= |
| By: | Annika Weber (Goethe University Frankfurt and SAFE); Christine Laudenbach (University of Bonn); Johannes Wohlfart (Department of Economics and CEBI, University of Copenhagen) |
| Abstract: | We survey retail investors at an online bank to study beliefs about the autocorrelation of aggregate stock returns, and how these beliefs shape investment decisions measured in administrative account data. Individuals' beliefs exhibit substantial heterogeneity and predict trading responses to market movements. We inform a random half of our respondents that historically the autocorrelation of aggregate returns was close to zero, which persistently changes their beliefs. Among those initially believing in mean reversion, treated respondents buy significantly less equity during the COVID-19 crash four months later. Our results highlight how heterogeneity in subjective models causally drives trade in asset markets. |
| Keywords: | Expectation Formation, Information, Updating, Retail Investors, Trading, |
| JEL: | D14 D83 D84 D91 E71 |
| Date: | 2021–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kucebi:2117&r= |
| By: | Marlon Rawlins; Ms. Luisa Zanforlin |
| Abstract: | Policymakers across countries have been seeking to strengthen the institutional framework to control fiscal costs and feedback effects to the real economy generated by bank failures. On a cross-section of countries, we find evidence that suggests that bank supervisors’ intervention in bank failures may be positively associated with some aspects of the administrative and regulatory framework. Our results appear to hold also during times of financial instability. Finally, we find some evidence that the same institutional features may be associated with lower fiscal outlays during banking crises. |
| Keywords: | feedback effect; times authorities; government efficiency; supervisory authority; review authorities; bank insolvency proceeding; CB independence; Banking crises; Distressed institutions; Central bank autonomy; Financial sector stability; South America; Global |
| Date: | 2021–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/211&r= |
| By: | Alex Cobham (Tax Justice Network); Edmund FitzGerald (Oxford University); Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | Progressive direct taxation is necessary to complement social protection, in order to reduce income inequality as well as poverty. A new metric of personal income tax incidence progressivity (the "Plato Index") is presented, using WIDER databases for income inequality (WIID) and tax revenues (GDR). Taxation is shown to be far less progressive in developing countries, than in developed ones (particularly Europe) although there are large variations within regional and income groups. There is significant correlation of direct tax progressivity not only with the level of economic development, but also with health and education provision. Both findings imply potential policy space for higher personal income tax pressure. |
| Keywords: | direct taxation, tax progressivity, developing countries, fiscal incidence, social protection |
| JEL: | D12 H23 I32 O15 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2021_35&r= |
| By: | Mr. Fabio Comelli; Ms. Sumiko Ogawa |
| Abstract: | This paper reviews the approaches to systemic risk analysis in 32 central bank financial stability reports (FSRs). We compare and contrast the systemic risk analysis in FSRs with the IMF Article IV staff reports, noting that Article IV staff reports and FSRs frequently pick up analytical content from each other. All reviewed FSRs include a systemic risk assessment, which has not always been the case in Article IV staff reports. Also, compared to Article IV staff reports, on average, FSRs tend to cover a wider range of financial risks and vulnerabilities and tend to have more extensive discussions of the policy mix to mitigate systemic risk. In these assessments, FSRs utilize sophisticated analytical tools, such as stress tests and growth-at-risk, more frequently than Article IV staff reports. We emphasize that a central bank FSR typically presents a rich resource that IMF country teams can leverage, as already done by some, in forming their independent view about systemic risk. |
| Keywords: | IMF article IV staff report; IMF country team; central bank FSR; IMF article IV surveillance; IMF article IV consultation; Systemic risk; Financial sector stability; Macroprudential policy; Stress testing; Systemic risk assessment; Global; Caribbean |
| Date: | 2021–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/200&r= |
| By: | Hie Joo Ahn; Matteo Luciani |
| Abstract: | This paper decomposes consumer price inflation into pure inflation, relative price inflation, and idiosyncratic inflation by estimating a dynamic factor model á la Reis and Watson (2010) on a data set of 146 monthly disaggregated prices from 1995 to 2019. We find that pure inflation is the trend around which PCE price inflation fluctuates, while relative price inflation and idiosyncratic inflation drive the fluctuation of PCE price inflation around the trend. Unlike Reis and Watson, we find that labor market slack is the main driver of pure inflation and that energy prices account for variation in relative price inflation. |
| Keywords: | Pure inflation; Relative price inflation; Phillips correlation; Dynamic factor model; Disaggregated consumer prices; Monetary policy |
| JEL: | C32 C43 C55 E31 E52 |
| Date: | 2021–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2021-69&r= |
| By: | Paolo Fegatelli |
| Abstract: | The introduction of a general-purpose central bank digital currency (CBDC) carries the risk of bank disintermediation, potentially jeopardizing financial stability and monetary policy transmission through the bank lending channel. By adapting the theoretical framework of Dutkowsky and VanHoose (2018b, 2020) to the euro area, this study clarifies the conditions under which a digital euro could be introduced on a large scale without leading to bank disintermediation or a credit crunch. First, the central bank would need to set up proper mechanisms to manage the volume and the user cost of CBDC in circulation. Second, since some bank deposits will be converted into CBDC, the central bank should continue to facilitate access to its long-term lending facilities in order to provide banks with an alternative funding source at an equivalent cost. Depending on its design, a digital euro could improve bank profitability by absorbing large amounts of idle (and expensive) excess reserves without penalizing lending. A digital euro could also improve banks’ competitive position relative to non-bank lenders and encourage bank digitalization. |
| Keywords: | Central bank digital currency, cash, central bank, monetary policy, excess reserves, reserve requirements, universal central bank reserves, bank deposits, bank profitability, bank credit, inside money, collateral |
| JEL: | E41 E42 E51 E52 E58 G21 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp155&r= |
| By: | Erbahar, Aksel; Rebeyrol, Vincent |
| Abstract: | This paper shows that Turkish manufacturing exporters export goods that they have not pro-duced and thus also act as trade intermediaries. This exporting of “sourced” products is ubiquitous across firms, products, and destinations. Beyond these facts, the main contribution of the paper is to show that sourced exports are more sensitive to gravity determinants than produced exports at the aggregate level, but at the firm level, this relationship is reversed. We rationalize these findings by allowing producers to act as intermediaries in a model where profitability at the product-destination level is stochastic and correlated across markets. We provide empirical evidence for the model’s core mechanism. |
| Keywords: | international trade; intermediaries; carry-along trade; multi-product firms |
| JEL: | F12 F14 L2 |
| Date: | 2021–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126178&r= |
| By: | Hazrana, Jaweriah; Kishore, Avinash; Roy, Devesh |
| Keywords: | Crop Production/Industries |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae21:315144&r= |
| By: | Asier Guti\'errez-Fandi\~no; Miquel Noguer i Alonso; Petter Kolm; Jordi Armengol-Estap\'e |
| Abstract: | We introduce a new language representation model in finance called Financial Embedding Analysis of Sentiment (FinEAS). In financial markets, news and investor sentiment are significant drivers of security prices. Thus, leveraging the capabilities of modern NLP approaches for financial sentiment analysis is a crucial component in identifying patterns and trends that are useful for market participants and regulators. In recent years, methods that use transfer learning from large Transformer-based language models like BERT, have achieved state-of-the-art results in text classification tasks, including sentiment analysis using labelled datasets. Researchers have quickly adopted these approaches to financial texts, but best practices in this domain are not well-established. In this work, we propose a new model for financial sentiment analysis based on supervised fine-tuned sentence embeddings from a standard BERT model. We demonstrate our approach achieves significant improvements in comparison to vanilla BERT, LSTM, and FinBERT, a financial domain specific BERT. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.00526&r= |
| By: | Sebastian Edwards |
| Abstract: | This paper deals with COVID and macroprudential regulations in emerging markets. I document the build-up of a sturdy macroprudential structure during 2009-2019, and the relaxation of regulations in 2020-2021, as part of the effort to deal with the sanitary emergency. I show that in every country, regulatory forbearance played a key role in the response to COVID. I discuss capital controls as macroprudential instruments. I argue that rebuilding the macroprudential fabric is important to reduce the costs of future systemic shocks. I maintain that post-COVID regulations should incorporate the risks associated with digital currencies. |
| JEL: | E31 E52 E58 F3 F41 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29441&r= |
| By: | Caroline PERRIN (LaRGE Research Center, Université de Strasbourg); Laurent WEILL (LaRGE Research Center, Université de Strasbourg) |
| Abstract: | We examine the effect of CEO gender on the relation between economic policy uncertainty (EPU) and corporate investment. Using the newspaper-based EPU index developed by Baker, Bloom, and Davis (2016), we perform an empirical investigation on firm-level data of more than 38,000 firms from eight European countries for 2010-2019. We find evidence that higher EPU is associated with higher corporate investment. However, we show that this beneficial effect of economic policy uncertainty is lower when the firm CEO is a woman. We explain this finding by the higher risk aversion of women relative to men. Our main results are robust to a battery of sensitivity tests. Our work contributes to the debate on the impact of EPU on firm corporate decisions by bringing upfront the influence of CEO gender. |
| Keywords: | Economic policy uncertainty, firm investment, CEO gender. |
| JEL: | G30 G32 J16 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2021-04&r= |
| By: | Odhiambo |
| Abstract: | In this paper, the causal relationship between trade openness and energy consumption in 20 sub-Saharan African (SSA) countries during the period 1990-2019 is examined. Trade openness is derived from three components, namely total trade, total exports, and total imports, all expressed as a percentage of GDP. In order to account for the omission-of-variable bias, economic growth and urbanisation have been incorporated as intermittent variables between the various components of trade openness and energy consumption. The study first examines the presence of cross-sectional dependence among the countries employed using four cross-sectional dependence tests. Thereafter, both the first- and second-generation unit root tests are used to examine the order of integration. In addition, three panel cointegration tests are used to examine the cointegration among the variables included in the study. Using a multivariate ECM-based panel Granger-causality test, the study found that there is a unidirectional causal flow from trade openness to energy consumption, but only when the exports are used as a proxy for trade openness. When total trade and total imports are used as proxies, no causality is found to exist between trade openness and energy consumption in either direction, irrespective of whether the causality test is conducted in the short run or in the long run. This finding, though contrary to some of the previous studies, is not surprising given the disparity in trade balance and energy challenges facing many SSA countries. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:afa:wpaper:aeri0821&r= |
| By: | Saungweme; Odhiambo |
| Abstract: | The study seeks to empirically test the hypothesis that public debt has a significant influence on inflation in Zimbabwe, covering the period 1980-2020. The study was motivated by recent trends in public debt and domestic inflation in Zimbabwe, and the need to guide debt-inflation related policy. These latest trends have started to ring alarming bells, which raises questions on the effectiveness of fiscal and monetary policies in bringing macroeconomic stability in the country. Applying the Autoregressive Distributed Lag (ARDL) bounds testing procedure to cointegration and an error correction mechanism (ECM), expanded by incorporating structural breaks, the study finds evidence in support of positive and significant impact of public debt on inflation dynamics in Zimbabwe, particularly in the long run. Based on the findings, public debt dynamics matter for inflation process in Zimbabwe. That is, fiscal policy can be considered to be an important determinant of the effectiveness of monetary policy in Zimbabwe. Therefore, the government should be mindful of increases in public debt as this was found to be inflationary. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:afa:wpaper:aeri0521&r= |
| By: | Maria Gabriella Graziano (Università di Napoli Federico II and CSEF); Marialaura Pesce (Università di Napoli Federico II and CSEF); Maria Romaniello (Università degli Studi della Campania Luigi Vanvitelli.) |
| Abstract: | We consider pure exchange economies with finitely many private goods including also non-Samuelsonian public goods. For this type of economies, the notion of competitive equilibrium called cost share equilibrium is founded on individual payments for public goods varying according to individual benefits. This situation naturally arises when a level of provision is interpreted as a whole configuration of public policies or when cost share functions are interpreted as voluntary contributions instead of predetermined tax systems (Mas Colell (1980)). We establish the equivalence of cost share equilibria with cooperative and non-cooperative game-theoretic solutions. In particular: 1. we characterize cost share equilibria as those allocations which cannot be improved upon by the society; 2. we characterize cost share equilibria as Nash equilibria of a game with two players. Then we discuss the existence of cost share equilibria in economies with public projects satisfying standard assumptions and provide a condition for the set of cost share equilibria to be non-empty. Our analysis of cooperative solutions is based on contribution schemes which capture the fraction of the total cost of collective goods that each coalition of agents is expected to cover. |
| Keywords: | Non-Samuelsonian public goods, Cost share equilibrium, Aubin core, Nash equilibrium. |
| JEL: | D49 D51 C72 |
| Date: | 2021–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:628&r= |
| By: | Konrad Menzel |
| Abstract: | We provide asymptotic approximations to the distribution of statistics that are obtained from network data for limiting sequences that let the number of nodes (agents) in the network grow large. Network formation is permitted to be strategic in that agents' incentives for link formation may depend on the ego and alter's positions in that endogenous network. Our framework does not limit the strength of these interaction effects, but assumes that the network is sparse. We show that the model can be approximated by a sampling experiment in which subnetworks are generated independently from a common equilibrium distribution, and any dependence across subnetworks is captured by state variables at the level of the entire network. Under many-player asymptotics, the leading term of the approximation error to the limiting model established in Menzel (2015b) is shown to be Gaussian, with an asymptotic bias and variance that can be estimated consistently from a single network. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.01678&r= |
| By: | Lima, Pedro G. (University of Porto); Teixeira, Pedro N. (University of Porto); Silva, Sandra T. (University of Porto) |
| Abstract: | Since the late twentieth century there has been a growing interest in academic and political circles on inequality. In this paper, we develop a systematic analysis of the literature on this topic published in economic journals since the 1950s. This is done through an innovative approach that presents (i) an identification and characterization of the main streams of research about Inequality since the 1950s; (ii) the development of a new method of analysis that combines (ii-a) a quantitative bibliometric analysis using the VOSviewer software, which maps them into different clusters, (ii-b) a qualitative analysis, where we determine the main streams of research, based, not only on the content of each reference, but also on the context where they are cited, and provide context to the development of each cluster by analysing the most important journals, authors, and institutions. The analysis leads to the identification of seven clusters, each of them with several streams of research. Each of the clusters is characterized according to several aspects such as the journals where the contributions were published, the alma matres and academic affiliations of the authors, and the countries in which those authors are based. The leading journals and the dominant academic institutions are the same as found in economics broadly considered, but they vary from cluster to cluster. Among the authors that have had major influence in the development of this field of economic research, stand out Anthony Atkinson, Simon Kuznets, Michael Kalecki, and Thomas Piketty. |
| Keywords: | inequality, distribution of income, wealth, bibliometrics, Kuznets, Atkinson, Piketty, Kalecki |
| JEL: | B2 D31 E24 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14777&r= |
| By: | Giorgio Meucci (Bank of Italy); Fabio Parlapiano (Bank of Italy) |
| Abstract: | This work analyses the main trends in bond financing by Italian non-financial firms and its role in relation to bank credit across different economic phases. The first part of the analysis refers to the 2008-2019 period, characterized by both crisis and recovery episodes, while the second part focuses on the specific effects of the recent pandemic crisis. The corporate bond market experienced substantial growth over the years, with an increasing number and more diverse types of issuers tapping the market. At the same time, not all crises episodes have had similar effects for bond financing. The 2008 and 2012 crises encouraged non-financial firms, especially the larger ones, to use bond instruments as an alternative to (rationed) bank credit, highlighting substitutability between market and bank-based financing channels. Instead, during the 2020 pandemic crisis, both bond issuances and bank credit expanded at unprecedentedly high rates, highlighting complementarities. |
| Keywords: | non-performing loans, firm distress, firm recovery |
| JEL: | G1 G3 G32 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_655_21&r= |
| By: | Ms. Kazuko Shirono; Mr. Hector Carcel Villanova; Esha Chhabra; Ms. Bidisha Das; Ms. Yingjie Fan |
| Abstract: | The rapid uptake of mobile money in recent years has generated new data needs and growing interest in understanding its impact on broad money. This paper reviews mobile money trends using mobile money data from the Financial Access Survey (FAS) and examines the statistical treatment of mobile money under the IMF’s Monetary and Financial Statistics (MFS) framework. MFS guidance is straightforward in most cases, as many jurisdictions have adopted regulations which ensure that mobile money is captured in the banking system and thus in the calculation of broad money. However, in cases where mobile network operators (MNOs) act as niche financial intermediaries outside the banking regulatory perimeter and are allowed to invest their customer funds in sovereign securities and other permitted assets, mobile money liabilities may remain outside the banking system as well as monetary statistics. In that case, information on mobile money liabilities need to be collected directly from MNOs to account for mobile money as part of broad money. |
| Keywords: | usage pattern; money account; customer funds; value chain; agent outlet; money issuer; measurement issue; monetary value; Mobile banking; Monetary base; Monetary statistics; Financial statistics; West Africa |
| Date: | 2021–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/177&r= |
| By: | Kuhn, Moritz (University of Bonn); Manovskii, Iourii (University of Pennsylvania); Qiu, Xincheng (University of Pennsylvania) |
| Abstract: | Spatial differences in labor market performance are large and highly persistent. Using data from the United States, Germany, and the United Kingdom, we document striking similarities in spatial differences in unemployment, vacancies, job finding, and job filling within each country. This robust set of facts guides and disciplines the development of a theory of local labor market performance. We find that a spatial version of a Diamond-Mortensen-Pissarides model with endogenous separations and on-the-job search quantitatively accounts for all the documented empirical regularities. The model also quantitatively rationalizes why differences in job-separation rates have primary importance in inducing differences in unemployment across space while changes in the job-finding rate are the main driver in unemployment fluctuations over the business cycle. |
| Keywords: | local labor markets, unemployment, vacancies, search and matching |
| JEL: | J63 J64 E24 E32 R13 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14791&r= |
| By: | Alassane Drabo |
| Abstract: | The three main financial inflows to developing countries have largely increased during the last two decades, despite the large debate in the literature regarding their effects on economic growth which is not yet clear-cut. An emerging literature investigates the dependence of their effects on some country characteristics such as human and physical capital constraint, macroeconomic policy and institutional capacity. This paper extends the literature by arguing that climate shocks may undermine the effect of Foreign Direct Investment (FDI), official development assistance (ODA) and migrants’ remittances on economic expansion. Based on neoclassical growth framework, the theoretical model indicates that FDI, ODA, and remittances improve economic growth, and the size of the effect increases with good absorptive capacity. However, climate shocks reduce this positive effect of financial flows in developing countries. Using a sample of low and middle-income countries from 1995 to 2018, the empirical investigation confirms the theoretical conclusions. Developing countries should build strong resilience to climate change. Actions are also needed at global level to reduce greenhouse gases emissions, and build strong structural resilience to climate shocks especially in developing countries. |
| Keywords: | inflows-economic growth nexus; effect of ODA; income group; role of Climate; effect of foreign direct investment; Climate change; Absorptive capacity; Foreign direct investment; Human capital; Middle East; East Asia; Asia and Pacific; North Africa; South Asia; Global |
| Date: | 2021–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/193&r= |
| By: | Autor, David (MIT); Dorn, David (University of Zurich); Hanson, Gordon H. (University of California, San Diego) |
| Abstract: | We evaluate the duration of the China trade shock and its impact on a wide range of outcomes over the period 2000 to 2019. The shock plateaued in 2010, enabling analysis of its effects for nearly a decade past its culmination. Adverse impacts of import competition on manufacturing employment, overall employment-population ratios, and income per capita in more trade-exposed U.S. commuting zones are present out to 2019. Over the full study period, greater import competition implies a reduction in the manufacturing employment-population ratio of 1.54 percentage points, which is 55% of the observed change in the value, and the absorption of 86% of this net job loss via a corresponding decrease in the overall employment rate. Reductions in population headcounts, which indicate net out-migration, register only for foreign-born workers and the native-born 25-39 years old, implying that exit from work is a primary means of adjustment to trade-induced contractions in labor demand. More negatively affected regions see modest increases in the uptake of government transfers, but these transfers primarily take the form of Social Security and Medicare benefits. Adverse outcomes are more acute in regions that initially had fewer college-educated workers and were more industrially specialized. Impacts are qualitatively—but not quantitatively—similar to those caused by the decline of employment in coal production since the 1980s, indicating that the China trade shock holds lessons for other episodes of localized job loss. Import competition from China induced changes in income per capita across local labor markets that are much larger than the spatial heterogeneity of income effects predicted by standard quantitative trade models. Even using higher-end estimates of the consumer benefits of rising trade with China, a substantial fraction of commuting zones appears to have suffered absolute declines in average real incomes. |
| Keywords: | import competition, China trade, local labor markets, manufacturing decline, job loss |
| JEL: | E24 F14 F16 J23 J31 L60 O47 R12 R23 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14804&r= |
| By: | Ana Kristel Lapid (Asian Development Bank); Rogelio Jr Mercado (Asian Development Bank); Peter Rosenkranz (Asian Development Bank) |
| Abstract: | Cross-border bank positions in the Asia and the Pacific region remain highly concentrated to few counterparties, exposing the region to financial risks and policy spillovers. Consequently, assessing the determinants and impacts of the region’s cross-border banking concentration is relevant in designing appropriate policies to promote financial development and safeguard financial stability. To this end, we construct cross-border bank concentration measures for 47 economies in Asia and the Pacific from 2000 to 2019. The results show that higher capital account and trade openness as well as per capita income are significantly associated with lower cross-border bank concentration. Moreover, elevated cross-border bank concentration tends to lower domestic credit growth and nonperforming loans, while we find no impact on bank profitability for the region. |
| Keywords: | cross-border bank exposures, cross-border bank concentration, credit growth, non-performing loans, bank profitability, Asia and the Pacific |
| JEL: | E44 F36 G21 O16 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep0121&r= |
| By: | Julio A. Crego (Tilburg University); Julio Gálvez (Banco de España) |
| Abstract: | We examine linear correlation and tail dependence between market neutral hedge funds and the market portfolio conditional on the financial cycle. We document that the low correlation between these funds and the S&P 500 consists of a negative correlation during bear periods and a positive one during bull periods. In contrast, the remaining styles present a positive correlation across cycles. We also find that these funds present tail dependence only during bull periods. We study their implications for market timing and risk management. |
| Keywords: | hedge funds, market neutrality, market timing, tail dependence, risk management |
| JEL: | G11 G23 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2141&r= |
| By: | Pedro Bento (Texas A&M University, Department of Economics) |
| Abstract: | The number of women-owned businesses in the U.S. has soared over the last several decades, even compared to the rise in female labor market participation. In 1982 less than 9 percent of working women owned businesses, compared to over 17 percent of men. By 2012 more than 18 percent of women owned businesses while the analogous rate for men only slightly increased to almost 20 percent. This and other evidence suggests that women have faced significant barriers to starting and running businesses and these barriers have been declining over time. I examine the impact of these trends on aggregate output and the welfare of women and men in the labor force. Interpreted through the lens of a model of entrepreneurship, observed trends imply substantial declines in several barriers facing female entrepreneurs. Together, these changes account for over 12 percent of observed growth in aggregate output and a 2 percent increase in workers' consumption-equivalent welfare since 1982. By 2012, lower barriers increased the welfare of female entrepreneurs by a dramatic 33 percent, while lowering the welfare of male entrepreneurs by 6 percent. These impacts are in addition to any gains to workers from declining labor-market barriers. |
| Keywords: | women, entrepreneurship, business dynamism, misallocation, aggregate productivity, economic growth. |
| JEL: | E02 E1 J7 O1 O4 |
| Date: | 2021–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:txm:wpaper:20211108-001&r= |
| By: | Dong Hwan Oh; Andrew J. Patton |
| Abstract: | Many important economic decisions are based on a parametric forecasting model that is known to be good but imperfect. We propose methods to improve out-of-sample forecasts from a mis- speci ed model by estimating its parameters using a form of local M estimation (thereby nesting local OLS and local MLE), drawing on information from a state variable that is correlated with the misspeci cation of the model. We theoretically consider the forecast environments in which our approach is likely to o¤er improvements over standard methods, and we nd signi cant fore- cast improvements from applying the proposed method across distinct empirical analyses including volatility forecasting, risk management, and yield curve forecasting. |
| Keywords: | Model misspecification; Local maximum likelihood; Volatility forecasting; Value-at-risk and expected shortfall forecasting; Yield curve forecasting |
| JEL: | C53 C51 C58 C14 |
| Date: | 2021–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2021-71&r= |
| By: | Biagio Bossone (World Bank (US)) |
| Abstract: | In this article, I argue that current macroeconomic models (both orthodox and heterodox), centered as they are on local agents or agencies, do not recognize the role that "global investors" play in determining the space for effective macroeconomic policies. I therefore argue that these important players must be placed at the center of macroeconomic analysis if we are to understand how macroeconomic policies really work in the global financial environment. The article describes the key characteristics of global investors, analyzes their power to determine the value at which public sector liabilities (money and debt) are traded on international markets and how this power affects policy effectiveness. Consequently, no country is truly sovereign in a globalized world and the government of every country is subject to an intertemporal budget constraint (IBC), although, of course, not all countries are equal and not all IBCs are equally binding: the IBCs are flexible and endogenous to the decisions of global investors but in any case, unavoidable. I conclude the article by arguing that the policy choices of countries in today's globalized financial environment would benefit from revisiting some of John Maynard Keynes's teachings, considering his in-depth knowledge of global financial markets and how they affect economies. of the countries. |
| Keywords: | economic sovereignty; exchange rates; global financial markets; global investors; macroeconomic policies; money; policy credibility; policy space; public debt |
| JEL: | E60 F62 F65 G15 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2120&r= |
| By: | Marco Albori (Bank of Italy); Flavia Corneli (Bank of Italy); Valerio Nispi Landi (Bank of Italy); Alessandro Schiavone (Bank of Italy) |
| Abstract: | In the 1990s and 2000s, most countries – including many emerging economies – lifted some barriers to FDI together with trade liberalization; this trend has slowed since the global financial crisis. In this paper, we assess the impact of FDI restrictions on gross inflows by exploiting the sectoral dimension of FDI flows and of the Regulatory Restrictiveness Index (RRI) reported in the OECD databases. In a sample of 17 OECD countries and 23 sectors covering the years 2012-2018, we find that FDI restrictions significantly dampen foreign investments in the manufacturing and service sectors, particularly when they limit foreign equity acquisitions. We also take into account restrictions motivated by national security considerations, which are not scored in the RRI; similarly to other restrictions involving screening schemes, they have not had a significant impact on the size of FDI flows so far. |
| Keywords: | foreign direct investment, capital controls, national security |
| JEL: | F21 F38 F52 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_656_21&r= |
| By: | Junko Doi (Kansai University); Kota Yamada (kansai University); Masaya Yasuoka (Kwansei Gakuin University) |
| Abstract: | The aims of our study are to set a Dynamic Stochastic General Equilibrium (DSGE) model and to examine how increased income or consumption tax rates affect the ratio of public debt to GDP and other macroeconomic parameters. We consider taxation of three types, on labor income, capital income, and consumption. Results derived from our simulation show that an increase in income tax rates of these forms of taxation raises the ratio of public debt to GDP because GDP and tax revenues decrease. An increase in consumption tax rate can reduce the ratio of public debt to GDP because of an increase in the aggregate demand that is pulled up by the investment. Our study shows that a decrease in the income tax rate reduces the ratio of public debt to GDP. |
| Keywords: | DSGE Model, Fiscal Sustainability, Taxation. |
| JEL: | E60 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:231&r= |
| By: | Krzysztof Kruszewski (Narodowy Bank Polski); Mikołaj Szadkowski (Narodowy Bank Polski, Warsaw School of Economics) |
| Abstract: | This paper presents an analysis of the impact of the central bank’s financial result and its components on the inter-sectoral transfers of benefits and the creation of central bank money. Transfers of benefits depend on the structure of the central bank’s balance sheet and its financial result. The structure of its balance sheet, its financial result as well as profit distribution influence central bank money creation. If the central bank records a profit, fully transferred to the state budget, and its assets are mainly denominated in domestic currency, then the central bank’s financial result can be seen only as a tool for intermediation in the transfer of benefits between different sectors of the national economy. In such a situation, the bank’s financial result does not affect the volume of the central bank’s money. On the other hand, if the central bank records a profit, fully paid to the state budget, and its assets are mainly denominated in foreign currency, then there is a transfer from foreign entities to the domestic economy, and there is simultaneously an increase in central bank money volume. However, if the central bank incurs a loss and the loss is not covered, for example, by the government, then the central bank transfers benefits directly from itself to other sectors of the economy, and regardless of the structure of its balance sheet, there is an increase in the central bank’s money issuance. |
| Keywords: | central bank, financial result, balance sheet, transfers between sectors of the economy |
| JEL: | E51 E58 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:340&r= |
| By: | Guohua Feng; Jiti Gao; Bin Peng |
| Abstract: | Despite its paramount importance in the empirical growth literature, productivity convergence analysis has three problems that have yet to be resolved: (1) little attempt has been made to explore the hierarchical structure of industry-level datasets; (2) industry-level technology heterogeneity has largely been ignored; and (3) cross-sectional dependence has rarely been allowed for. This paper aims to address these three problems within a hierarchical panel data framework. We propose an estimation procedure and then derive the corresponding asymptotic theory. Finally, we apply the framework to a dataset of 23 manufacturing industries from a wide range of countries over the period 1963-2018. Our results show that both the manufacturing industry as a whole and individual manufacturing industries at the ISIC two-digit level exhibit strong conditional convergence in labour productivity, but not unconditional convergence. In addition, our results show that both global and industry-specific shocks are important in explaining the convergence behaviours of the manufacturing industries. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.00449&r= |
| By: | Nauges, Céline; Bougherara, Douadia; Koussoubé, Estelle |
| Abstract: | Using a large representative dataset of 4,428 maize farmers from Burkina Faso with information on over 7,800 plots, we study the role of risk and farmers’ risk preferences in their use of nitrogen fertilizers. After characterizing the role of nitrogen on the moments of the maize yield distribution, we plug the plot-specific distributions into a structural model that allows for both risk preferences and probability distortion to elicit farmers’ underlying behavioural model. We found farmers to be only moderately risk averse and to distort probabilities; i.e., farmers overweight the small probabilities of getting high yields. Finally, running simulations, we find that prices are a more important driver of the quantity of nitrogen used on maize plots than farmers’ risk preferences. Our results suggest that input subsidy programs in this context, if well implemented, may have the potential to increase fertilizer use. |
| Date: | 2021–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126182&r= |
| By: | Mary Amiti; Sebastian Heise; Aidan Wang |
| Abstract: | The prices of U.S. imported goods, excluding fuel, have increased by 6 percent since the onset of the COVID-19 pandemic in February 2020. Around half of this increase is due to the substantial rise in the prices of imported industrial supplies, up nearly 30 percent. In this post, we consider the implications of the increase in import prices on U.S. industry inflation rates. In particular, we highlight how rising prices of imported intermediate inputs, like industrial supplies, can have amplified effects through the U.S. economy by increasing the production cost of goods that rely heavily on these inputs. |
| Keywords: | inflation; import prices; inputs; supply chains |
| JEL: | F0 E31 |
| Date: | 2021–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:93322&r= |
| By: | Perry Singleton (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244) |
| Abstract: | Behavioral bias in occupational fatality risk is introduced to the theoretical framework of hedonic wages, yielding an endogenous risk ceiling that increases social welfare. Empirically, bias is most evident among workers with no high school diploma, who do not report relatively greater exposure to death in high fatality rate occupations. These findings suggest that extant population estimates of value of statistical life are biased downwards and should be factored by at least 1.35. Under reasonable assumptions, simulations suggest an optimal risk ceiling between 73.0 to 85.9 percentile of the population distribution of occupational fatality risk. |
| Keywords: | Compensating Wage Differentials, Value of Statistical Life, Workplace Safety, Occupational Safety |
| JEL: | J31 J81 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:max:cprwps:242&r= |
| By: | Todd Keister; Daniel R. Sanches |
| Abstract: | We study how the introduction of central bank digital currency affects interest rates, the level of economic activity, and welfare in an environment where both central bank money and private bank deposits are used in exchange. We highlight an important policy tradeoff: While a digital currency tends to promote efficiency in exchange, it may also crowd out bank deposits, raise banks’ funding costs, and decrease investment. We derive conditions under which targeted digital currencies, which compete only with physical currency or only with bank deposits, raise welfare. If such targeted currencies are infeasible, we illustrate the policy tradeoffs that arise when issuing a single, universal digital currency. |
| Keywords: | Monetary policy; public vs. private money; electronic payments; liquidity premium; disintermediation |
| JEL: | E42 E58 G28 |
| Date: | 2021–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:93351&r= |
| By: | Paraskevi Tzika (Department of Economics, University of Macedonia); Theologos Pantelidis (Department of Economics, University of Macedonia) |
| Abstract: | This paper examines the contribution of Economic Policy Uncertainty (EPU) to the persistence of shocks to stock market volatility. The study applies an innovative approach that compares the half-life of a shock in the context of a bivariate V AR model that includes the volatility of stock returns and EPU, with the half-life of the equivalent univariate ARMA model for the stock return volatility. Based on daily data for the UK and the US, the empirical results corroborate that EPU contributes to the persistence of shocks to stock market volatility for both countries. This contribution is higher for the US, where 14.3% of the persistence of shocks to stock market volatility can be attributed to the EPU index. |
| Keywords: | Economic Policy Uncertainty, Stock Market Volatility, Persistence, Half-Life |
| JEL: | C22 C32 E44 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:mcd:mcddps:2021_11&r= |
| By: | Dupuy, Arnaud (University of Luxembourg); Kennes, John (Aarhus University); Lyng, Ran Sun (University of Toronto) |
| Abstract: | We develop a two-sided multidimensional matching model of the market for CEOs that allows for both pecuniary and non-pecuniary (amenity) compensation. The model is estimated by maximum likelihood estimation using matched CEO-firm data from Denmark. We show that CEOs have preferences for building legacy and gaining empowerment. The legacy mechanism explains why there is low mobility in the CEO market, even though firms demand general CEO skills. The empowerment mechanism explains why CEOs are willing to sacrifice significant pecuniary income to manage high equity firms. The overall conclusion is that job amenities matter in the market for CEOs. |
| Keywords: | multidimensional matching, observed transfers, structural estimation, value of job amenities, taxation, CEO compensation, CEO performance |
| JEL: | G30 M12 C78 C35 D22 D31 J3 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14803&r= |
| By: | M, Anoop; Sirohi, Smita; Singh, H.P. |
| Keywords: | Environmental Economics and Policy |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae21:315391&r= |
| By: | Kerwin Kofi Charles; Matthew S. Johnson; Nagisa Tadjfar |
| Abstract: | We assess whether and why trade competition partly explains the sharp decline in U.S. workers’ attempts to organize labor unions in recent decades. We find that between 1990-2007, import competition due to the “China Shock” lowered union certification elections by 4.5% among workers in manufacturing industries directly exposed to it, and by 8.8% among workers indirectly exposed through its effect on their local labor market. Consistent with a simple model of workers’ decision to seek union representa- tion, we show that direct exposure lowered the expected wage gain from unionization, whereas indirect exposure increased the cost of job loss, both of which discourage worker organizing. |
| JEL: | F16 J41 J50 J51 J52 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29464&r= |
| By: | Sihvonen, Markus |
| Abstract: | I analyze time series momentum along the Treasury term structure. Past bond returns predict future returns both due to autocorrelation in bond risk premia and because unexpected bond return shocks increase the premium. Yield curve momentum is primarily due to autocorrelation in yield changes rather than autocorrelation in bond carry and can largely be captured using a single bond return or yield change factor. Because yield changes are partly induced by changes in the federal funds rate, yield curve momentum is related to post-FOMC announcement drift. The momentum factor is unspanned by the information in the term structure today and is hence inconsistent with standard term structure, macrofinance and behavioral models. I argue that the results are consistent with a model with unpriced longer term dependencies. |
| JEL: | G12 E43 E47 |
| Date: | 2021–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2021_015&r= |
| By: | Hamed Amini (Georgia State University - USG - University System of Georgia); Zhongyuan Cao (MATHRISK - Mathematical Risk Handling - Inria de Paris - Inria - Institut National de Recherche en Informatique et en Automatique - ENPC - École des Ponts ParisTech - UPEM - Université Paris-Est Marne-la-Vallée); Agnes Sulem (MATHRISK - Mathematical Risk Handling - Inria de Paris - Inria - Institut National de Recherche en Informatique et en Automatique - ENPC - École des Ponts ParisTech - UPEM - Université Paris-Est Marne-la-Vallée) |
| Date: | 2021–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03425599&r= |
| By: | Mr. Daehaeng Kim; Mr. Alvar Kangur; Niki Kalavrezou |
| Abstract: | The Greek pension system has been costly, complex, and distortive, which has contributed to Greece’s fiscal problems and discouraged labor force participation. Several attempts to reform the system faltered due to lack of implementation, pushback by vested interests, and court rulings leading to reversals. A series of reforms introduced throughout 2015–17 unified benefit and contribution rules, removed several distortions and reduced fragmentation and costs. If fully implemented throughout the long-term, these reforms can go a long way towards enhancing the pension system affordability. However, reforms faced setbacks and fell short of creating stronger incentives to build long contribution histories, to deliver sustainable growth by improving the fiscal policy mix, and to ensure fairness and equitable burden sharing across generations and interest groups. Policy priorities should aim towards fully implementing the 2015–17 reforms and complementing them with additional reforms to address these remaining objectives. |
| Keywords: | pension reform, labor market incentives, fiscal consolidation.; policy priority; pension system affordability; reform objective; Policy recommendation; pension system; Pension spending; Pensions; Aging; Retirement; Wages; Europe |
| Date: | 2021–07–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/188&r= |
| By: | F. Habib; H. Huang; A. Mauskopf; B. Nikolic; T. S. Salisbury |
| Abstract: | In this paper we employ a lifecycle model that uses utility of consumption and bequest to determine an optimal Deferred Income Annuity (DIA) purchase policy. We lay out a mathematical framework to formalize the optimization process. The method and implementation of the optimization is explained, and the results are then analyzed. We extend our model to control for asset allocation and show how the purchase policy changes when one is allowed to vary asset allocation. Our results indicate that (i.) refundable DIAs are less appealing than non-refundable DIAs because of the loss of mortality credits; (ii.) the DIA allocation region is larger under the fixed asset allocation strategy due to it becoming a proxy for fixed-income allocation; and (iii.) when the investor is allowed to change asset-allocation, DIA allocation becomes less appealing. However, a case for higher DIA allocation can be made for those individuals who perceive their longevity to be higher than the population. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.01234&r= |
| By: | Atilla Aras |
| Abstract: | This study provides the solution to the equity premium puzzle. The new model was developed by including the behavior of investors toward risk in financial markets in prior studies. The calculations of this newly tested model show that the value of the coefficient of relative risk aversion is 1.033526 by assuming the value of the subjective time discount factor to be 0.99. Since these values are compatible with the existing empirical studies, they confirm the validity of the newly derived model that provides the solution to the equity premium puzzle. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2110.14405&r= |
| By: | Ariana Paola Cortés à ngel; Mustafa Hakan Eratalay |
| Abstract: | In this paper, we analyse the dynamic partial correlation network of the constituent stocks of S&P Europe 350. We focus on global parameters such as radius, which is rarely used in financial networks literature, and also the diameter and distance parameters. The first two parameters are useful for deducing the force that economic instability should exert to trigger a cascade effect on the network. With these global parameters, we hone the boundaries of the strength that a shock should exert to trigger a cascade effect. In addition, we analysed the homophilic profiles, which is quite new in financial networks literature. We found highly homophilic relationships among companies, considering firms by country and industry. We also calculate the local parameters such as degree, closeness, betweenness, eigenvector, and harmonic centralities to gauge the importance of the companies regarding different aspects, such as the strength of the relationships with their neighbourhood and their location in the network. Finally, we analysed a network substructure by introducing the skeleton concept of a dynamic network. This subnetwork allowed us to study the stability of relations among constituents and detect a significant increase in these stable connections during the Covid-19 pandemic. |
| Keywords: | Financial Networks, Centralities, Homophily, Multivariate GARCH, Networks Connectivity, Gaussian graphical model, Covid-19 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:mtk:febawb:134&r= |
| By: | Gohin, Alexandre; Cordier, Jean; Bagnarosa, Guillaume |
| Keywords: | Marketing, Livestock Production/Industries |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae21:315342&r= |
| By: | Herrade Igersheim |
| Abstract: | Although falling within the scope of political and moral philosophy, it is well known that A Theory of Justice has also had a great impact on economists. As such, Rawls put great emphasis on his desire to combine economics and philosophy, and particularly to deal with rational choice theory, notably and famously claiming that “the theory of justice is a part, perhaps the most significant part, of the theory of rational choice” (1971, 15). After the publication of A Theory of Justice, aspects of it came in for criticism – often very vehement – by economists such as Arrow (1973), Musgrave (1974), Harsanyi (1975) and later by Sen (1980). Rawls’s immediate answers (1974a,b in particular) showed that he first wanted to maintain a dialogue with the economists, but the later evolutions of his works (1993, 2001) clearly demonstrated that he had removed himself from the economic realm, returning to his initial philosophical territory in order to overcome the internal inconsistencies of A Theory of Justice. In this paper, by focusing extensively on the letter exchanges between Rawls and the economists before and after the publication of A Theory of Justice, I attempt to shed light on other (complementary) elements which can explain Rawls’s retreat from the realm of economics, and his progressive disenchantment regarding the possibility of a dialogue on equal footing between economists and philosophers. |
| Keywords: | Rawls, Sen, social justice, rational choice. |
| JEL: | B21 B31 D63 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2021-47&r= |
| By: | Narayanan, Sridhar (Stanford U); Kalyanam, Kirthi (Santa Clara U) |
| Abstract: | The availability of behavioral and other data on customers and advances in machine learning methods have enabled targeting of customers in a variety of domains, including pricing, advertising, recommendation systems and personal selling contexts. Typically, such targeting involves first training a machine learning algorithm on a training dataset, and then using that algorithm to score current or potential customers. When the score crosses a threshold, a treatment (such as an offer, an advertisement or a recommendation) is assigned. In this paper, we demonstrate that this has given rise to opportunities for causal measurement of the effects of such targeted treatments using regression discontinuity designs (RDD). Investigating machine learning in a regression discontinuity framework leads to several insights. First, we characterize conditions under which regression discontinuity designs can be used to measure not just local average treatment effects (LATE), but also average treatment effects (ATE). In some situations, we show that RD can be used to find bounds on the ATE even if we are unable to find point estimates. We then apply this to the machine learning based targeting contexts by studying two different ways in which the score required for targeting is generated, and explore the utility of RDD to these contexts. Finally, we apply our approach in the empirical context of the targeting of retargeted display advertising. Using a dataset from a context where a machine learning based targeting policy was employed in parallel with a randomized controlled trial, we examine the performance of the RDD estimate in estimating the treatment effect, validate it using a placebo test and demonstrate its practical utility. |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3925&r= |
| By: | Rachel Doehr; Enrique Martinez-Garcia |
| Abstract: | We propose a TVP-VAR with stochastic volatility for the unemployment rate, core inflation and the federal funds rate augmented with survey-based interest rate expectations and uncertainty and a FAVAR with a wider set of observable variables and alternative monetary policy measures in order to explore U.S. monetary policy, accounting for the zero lower bound. We find that a rise in monetary policy uncertainty increases unemployment and lowers core inflation; the effects on unemployment in particular are robust (a gradual 0.4 percentage point increase), lasting more than two years after the initial shock. Interest rate uncertainty shocks explain a significant portion of macro fluctuations, particularly after the 2007-09 global financial crisis contributing to push the unemployment rate one percentage point higher during the early phase of the subsequent recovery. Furthermore, we find that higher interest rate uncertainty makes forward guidance shocks (but also federal funds rate shocks) less effective at moving unemployment and core inflation. We also posit a theoretical model to provide the structural backbone for our empirical results, via an “option value” channel. Theory yields sizeable real effects and a muted monetary policy transmission mechanism as firms choose to postpone investment decisions in response to heightened interest rate uncertainty. |
| Keywords: | Monetary Policy Transmission Mechanism; Monetary Policy Uncertainty; Forward Guidance; Business Cycle Propagation; Survey-Based Forecasts |
| JEL: | E30 E32 E43 E52 |
| Date: | 2021–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:93385&r= |
| By: | Ms. Kimberly Beaton; Metodij Hadzi-Vaskov; Ms. Valerie Cerra |
| Abstract: | This paper examines the impact of trade on employment, wages, and other outcomes across countries and explores the conditions and policies that help spread the gains from trade more evenly throughout the population. We exploit a large global firm-level dataset to examine the impact of import competition on employment, wages, and firm performance, as well as the firm, industry, and country factors that mitigate any negative impact of an import shock. In contrast to the results of some well-known single-country studies, we find limited adverse impact of import competition. In some countries and industries, import competition actually strengthens employment growth. In addition, import competition tends to improve average wages, investment, and firm profitability. Country characteristics, such as educational attainment, can also improve employment prospects in response to trade shocks. Finally, we find that firms experiencing greater import competition start with higher average wages; thus any relatively slower employment growth in this group of firms could lead to lower inequality. |
| Keywords: | import competition; employment growth; import shock; firm investment; firm profitability; Imports; Employment; Competition; Wages; Income inequality; Global |
| Date: | 2021–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/178&r= |
| By: | Oya Celasun; Mr. Allan Timmermann; Jungjin Lee; Mr. Mico Mrkaic |
| Abstract: | This paper examines the performance of World Economic Outlook (WEO) growth forecasts for 2004-17. Short-term real GDP growth forecasts over that period exhibit little bias, and their accuracy is broadly similar to those of Consensus Economics forecasts. By contrast, two- to five-year ahead WEO growth forecasts in 2004-17 tend to be upward biased, and in up to half of countries less accurate than a naïve forecast given by the average growth rate in the recent past. The analysis suggests that a more efficient use of available information on internal and external factors—such as the estimated output gap, projected terms of trade, and the growth forecasts of major trading partners—can improve the accuracy of some economies’ growth forecasts. |
| Keywords: | Forecasting, forecasting bias and efficiency; WEO growth forecast; forecasting bias; Consensus Economics forecast; World Economic Outlook growth; forecast error; Emerging and frontier financial markets; Terms of trade; GDP forecasting; Output gap; Global financial crisis of 2008-2009; Caribbean; Middle East; North Africa; Global; Europe |
| Date: | 2021–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/216&r= |
| By: | Badunenko, Oleg; Galeotti, Marzio; Hunt, Lester C. |
| Abstract: | The standard approach to the Environmental Kuznets Curve (EKC) holds that as a country develops and GDP per capita grows environmental degradation initially increases but eventually it reaches a turning point where environmental degradation begins to decline. Environmental degradation takes many forms, one of them being emissions of harmful gases. According to the EKC concept, a country can reduce emissions by ‘growing’. The standard approach implicitly assumes that a country emits as little as possible for its economic development, whereas in reality, a country might emit above the best attainable level of emissions. Therefore, emissions could be reduced before and after the turning point by becoming more environmentally efficient – i.e., ‘improving’ the emissions level. This article proposes a Stochastic Environmental Kuznets Frontier (SEKF) which is estimated for CO2 emissions for OECD countries and used to benchmark each country before and after the turning point differently, thus, indicating how a country could ‘grow’ and/or ‘improve’ to reduce its CO2 emissions. Additionally, we analyse the role of the stringency of environmental policies in reducing a country’s carbon inefficiency measured by the distance from the benchmark EKC and find widespread carbon inefficiencies that could be reduced by more stringent market-based environmental policies. |
| Keywords: | Environmental Economics and Policy |
| Date: | 2021–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:ags:feemwp:316226&r= |
| By: | Marcin Pietrzak |
| Abstract: | This paper shows how the role of Financial Soundness Indicators (FSIs) in financial surveillance can be usefully enhanced. Drawing from different statistical techniques, the paper illustrates that FSIs generate signals that can accurately detect, with 4 to 12 quarters lead, emerging financial distress—as measured by tight financial conditions. |
| Keywords: | LV crises dataset; ROC curve; LD crises dataset; tight financial conditions; LV crisis; Financial soundness indicators; Capital adequacy requirements; Banking crises; Early warning systems; Global |
| Date: | 2021–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/197&r= |
| By: | Carneiro, Anabela (University of Porto); Portugal, Pedro (Banco de Portugal); Raposo, Pedro (Universidade Catolica Portuguesa, Lisbon); Rodrigues, Paulo M. M. (Banco de Portugal) |
| Abstract: | This paper provides comprehensive and detailed empirical regression analyses of the sources of wage persistence. Exploring a rich matched employer-employee data set and the estimation of a dynamic panel wage equation with high-dimensional fixed effects, our empirical results show that permanent unobserved heterogeneity plays a key role in driving wage dynamics. The decomposition of the omitted variable bias indicates that the most important source of bias is the persistence of worker characteristics, followed by the heterogeneity of firms' wage policy and last by the job-match quality. We highlight the importance of the incidental parameter problem, which induces a severe downward bias in the autoregressive parameter estimate, through both an in-depth Monte Carlo study and an empirical analysis. Using three alternative bias correction methods (the split-panel Jackknife (Dhaene and Jochmans, 2015), an analytical expression (Hahn and Kuersteiner, 2002), and a residual based bootstrap approach (Everaert and Pozzi, 2007, Gonçalves and Kaffo, 2015)), we observe that up to one-third of the reduction of the autoregressive parameter estimates induced by the control of permanent heterogeneity (high dimensional fixed effects) may not be justified. |
| Keywords: | wage persistence, high-dimensional fixed effects, match effects, incidental parameter problem |
| JEL: | J31 J63 J65 E24 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14798&r= |
| By: | Patrick T. Harker |
| Abstract: | Speaking to a virtual audience at the Fifth Annual Fintech Conference, Philadelphia Fed President Patrick T. Harker said he sees great opportunities in using fintech as a tool to promote financial inclusion. But he cautioned that human judgment is still responsible for training algorithms and determining how financial technologies operate. |
| Date: | 2021–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpsp:93369&r= |
| By: | Graziano Moramarco |
| Abstract: | Using a large quarterly macroeconomic dataset over the period 1960Q1-2017Q4, this paper documents the usefulness of selected financial ratios from the housing market and firms' aggregate balance sheets for predicting GDP in the United States over multi-year horizons. A house price-to-rent ratio adjusted for the business cycle and the liabilities-to-income ratio of the nonfinancial noncorporate business sector provide the best in-sample fit and out-of-sample forecasts of cumulative GDP growth over horizons of 1-5 years, outperforming all other predictors as well as popular high-dimensional forecasting models and forecast combinations. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.00822&r= |
| By: | Vito Polito; Yunyi Zhang |
| Abstract: | We develop a regime switching vector autoregression where artificial neural networks drive time variation in the coefficients of the conditional mean of the endogenous variables and the variance covariance matrix of the disturbances. The model is equipped with a stability constraint to ensure non-explosive dynamics. As such, it is employable to account for nonlinearity in macroeconomic dynamics not only during typical business cycles but also in a wide range of extreme events, like deep recessions and strong expansions. The methodology is put to the test using aggregate data for the United States that include the abnormal realizations during the recent Covid-19 pandemic. The model delivers plausible and stable structural inference, and accurate out-of-sample forecasts. This performance compares favourably against a number of alternative methodologies recently proposed to deal with large outliers in macroeconomic data caused by the pandemic. |
| Keywords: | nonlinear time series, regime switching models, extreme events, Covid-19, macroeconomic forecasting |
| JEL: | C45 C50 E37 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9395&r= |
| By: | Banti, Chiara; Bose, Udichibarna |
| Abstract: | This paper documents the emergence of a regional financial cycle in Asia, evidenced by commonality in regional bank flows, and its impact on domestic credit. Using a dataset of 24,169 non-financial Indian firms for the period 2001-2019, we establish that the regional financial cycle has a positive and significant impact on domestic corporate debt, as opposed to an insignificant effect on foreign currency corporate debt, after controlling for the global financial cycle. We find that both interbank markets and monetary policy conditions in the region act as transmission channels for this effect. We show that transparent firms which have lower monitoring costs are relatively more exposed to the regional financial cycle, suggesting that affiliates of foreign banks play an important role. However, the exposure of domestic credit markets reduces once regulators institute more stringent policy actions such as macroprudential policies, selective capital controls and floating currency regimes. |
| Keywords: | Regional financial cycle; domestic credit markets; macroprudential policies; capital controls; emerging markets |
| Date: | 2021–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:esy:uefcwp:31556&r= |
| By: | Valentine Jacobs; François Rycx; Mélanie Volral |
| Abstract: | This paper examines the influence of educational mismatch on wages according to workers’ region of birth, taking advantage of our access to rich matched employer-employee data for the Belgian private sector for the period 1999-2010. Using a fine-grained approach to measuring educational mismatch and controlling for a large set of covariates, we first find that workers born in developed countries benefit from positive wage returns to their years of attained-, required and over-education, and that these returns are significantly higher for them than for their peers born in developing countries. Second, our results show that the wage return to a year of over-education is positive but lower than that to a year of required education. This suggests that over-educated workers suffer a wage penalty compared to their well-matched former classmates (i.e. workers with the same level of education in jobs that match their education). However, the magnitude of this wage penalty is found to vary considerably depending on the origin of the workers. Indeed, all else being equal, our estimates show that it is much greater for workers from developing countries – especially for those born in Africa and the Middle and Near East – than for those from developed countries. Regardless of workers’ origin, our estimates further indicate that the wage penalty associated with over-education is higher for workers who: i) have attained tertiary education, ii) are male, iii) have more seniority in employment, iv) are employed in smaller firms, and v) are covered by a collective agreement at the firm level. Yet, whatever the moderating variable under consideration, the estimates also show that the wage penalty associated with over-education remains higher for workers born in developing countries. |
| Keywords: | Immigrants; educational mismatch; wage gap; linked employer-employee data |
| JEL: | I24 I26 J15 J24 J31 |
| Date: | 2021–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/333938&r= |
| By: | Guglielmo Maria Caporale; Anamaria Sova; Robert Sova |
| Abstract: | This paper analyses the impact of the Covid-19 pandemic on exports and imports in the case of 35 OECD countries during the 2019Q1-2021Q2 period using a dynamic panel approach, specifically the system Generalized Method of Moments (GMM). In contrast to earlier studies, the empirical specification incorporates not only an index for the restrictive (and fiscal) measures adopted by national governments, but also an interaction term with private credit which captures the role of the financial sector in the context of the current crisis. The findings suggest that the negative effects of the Covid-19 pandemic on international trade can be attenuated through (policies supporting) private credit, which confirms the importance of the trade-finance nexus. |
| Keywords: | Covid-19 pandemic, stringency index, overall government response index, credit to the private non-financial sector, dynamic panel models, GMM |
| JEL: | C25 E61 F13 F15 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9400&r= |
| By: | Saungweme; Odhiambo |
| Abstract: | This paper examines the relationship between inflation and economic growth in Kenya from an analytical and empirical standpoint. The paper applies the autoregressive distributed lag (ARDL) bounds testing approach and the multivariate Granger-causality test using time series data covering 1970-2019. Structural breaks in the time series were also conducted using the Perron (1997) (PPURoot) and Zivot-Andrews (1992) (ZAU Root) techniques. Incorporating structural breaks into time series increases statistical inference's overall validity. Inflation and economic growth in Kenya were found to have structural breaks in 1995 and 1991. These years are marked by Kenya's economic, financial, public sector and institutional reforms. The other findings of the study revealed that inflation has a statistically significant negative influence on long-term economic growth. The multivariate Granger-causality results showed a distinct short-run unidirectional causality from economic growth to inflation in Kenya. In order to mitigate the negative consequences of inflation and the coronavirus on the economy and welfare, the study recommends that Kenya's government should pursue prudent monetary, financial, and fiscal policies. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:afa:wpaper:aeri0421&r= |
| By: | Han Teng Chua; Jochen Schmittmann |
| Abstract: | Green debt markets are rapidly growing while product design and standards are evolving. Many policymakers and investors view green debt as an important component in the policy mix to achieve the transition to a low carbon economy and ensure the pricing of climate risks. Our analysis contributes to the nascent literature on the environmental impact of green debt by documenting the CO2 emission intensity of corporate green debt issuers. We find lower emission intensities for green bond issuers relative to other firms, but no difference for green loan and sustainability-linked loan borrowers. Green bond, green loan, and sustainability-linked loan borrowers lower their emission intensity over time at a faster rate than other firms. |
| Keywords: | debt issuer; bond issuer; loan borrower; debt data; emission intensity; Climate finance; Greenhouse gas emissions; Climate change; Bonds; Global |
| Date: | 2021–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/194&r= |
| By: | Vasily B. Kashin (National Research University Higher School of Economics); Alexandra D. Yankova (National Research University Higher School of Economics) |
| Abstract: | Interregional and cross-border cooperation between Russia and China is not only an important part of bilateral interactions, but also an incentive for the accelerated development of border territories. Studying the results of Russian-Chinese cross-border cooperation over the past 30 years makes it possible to track the institutional changes of the two countries, as well as the overall dynamics of their foreign trade and investment activities. The main feature of the current state of Russian-Chinese cross-border cooperation is the gradual fading of interest in it on both sides, which is in contradiction with the growing number of state programs, framework agreements and initiatives with serious political support. In order to understand the reasons for such an imbalance, this paper consistently analyzes the main dimensions and indicators of Russian-Chinese cross-border cooperation, as well as the regulatory framework and the results of the implementation of state programs and projects. On the example of successful and failed cases, an attempt is made to identify the deep obstacles to the development of interregional cooperation at different levels and compare them with the problems that Chinese experts highlight |
| Keywords: | cross-border cooperation, regional economy, regulatory framework, local elite, Far East, Russia, China. |
| JEL: | E60 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:42/ir/2021&r= |
| By: | Georg Fischer (The Vienna Institute for International Economic Studies, wiiw); Michael Landesmann (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | This policy note examines sectoral and occupational employment impacts of the Covid-19 crisis. The crisis hit EU economies (and advanced economies in general) as they were already undergoing important structural changes due to technological change (digitisation), a factor affecting most organisations now and in the future. Some of these changes accelerated during the pandemic, along with at times dramatic changes in sectoral demand patterns (due to lock-downs) and shifts in work organisation, all of which had strongly differential impacts on various occupational groups. The policy note studies in-depth occupational employment patterns before and during the pandemic using detailed Labour Force Statistics, including analysis of the differentiated impacts on women and men. The major policy challenge is to avoid lasting gaps in overall employment as economies recover and as temporary support schemes are phased out. Further, policy makers need to focus attention on how to accompany the continuing changes in structural employment patterns. These changes can have significant and lasting impacts on the employment prospects of different segments of the labour force (in terms of age, gender and educational/skill levels). The policy note postulates a number of policy actions which should be embarked upon, both at the national and EU level. |
| Keywords: | Covid-19 crisis, employment impact, occupational and sectoral impacts; gender impacts |
| JEL: | J01 J08 J23 J24 O52 O57 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:wii:pnotes:pn:53&r= |
| By: | Ilwoo Hwang; Jee Seon Jeon |
| Abstract: | We study an infinite-horizon multilateral bargaining game in which the status quo policy, players¡¯ recognition probabilities, and their voting weights are endogenously determined by the previous bargaining outcome. With players not discounting future payoffs, we show that the long-run equilibrium outcome features the concentration of power by one or two players, depending on the initial bargaining state. If the players¡¯ initial shares are relatively equal, they successfully prevent tyranny, but a two-player oligarchy nevertheless emerges and persists. The same results are obtained with payoff discounting, provided that the players¡¯ shares are not too small. Our results highlight the importance of the initial power distribution and discounting of future payoffs in the long-run development of power configuration. |
| Keywords: | Dynamic bargaining; Endogenous political power; Endogenous institution; Markov perfect equilibrium, Oligarchy; |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:snu:ioerwp:no145&r= |
| By: | Guglielmo Barone (University of Padua); Laura Conti (Bank of Italy); Gaia Narciso (Department of Economics, Trinity College Dublin); Marco Tonello (Department of Economics, Trinity College Dublin) |
| Abstract: | Third-party auditors are usually chosen and paid by the agent that is being audited and this may lead to a significant conflict of interest and to less strict audits. We investigate the effect of a new random allocation mechanism, according to which, starting from 2012, auditors of Italian municipalities have had to be chosen by means of a random draw from a large pool of experts. By exploiting the staggered adoption of the new allocation rule across municipalities, our difference-in-differences estimates show that the new regime implies a worsening of municipalities’ reported public finances, in terms of budget surpluses of the probability to be in financial distress. The effect is largely driven from municipalities endowed with lower social capital, so signalling that random allocation is somehow a substitute for the solution of the conflict of interest problem. In these municipalities, we also find that the new mechanism reduces some fraud detection indicators based on Benford’s law. |
| Keywords: | third-party auditors, random selection mechanism, public finance truthfulness |
| JEL: | M42 H72 D82 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep0820&r= |
| By: | Stefano Mengoli (Università di Bologna); Marco Pagano (University of Naples Federico II, CSEF and EIEF.); Pierpaolo Pattitoni (Università di Bologna) |
| Abstract: | Retail investors pay over twice as much attention to local companies than non-local ones, based on Google searches. News volume and volatility amplify this attention gap. Attention appears causally related to perceived proximity: first, acquisition by a nonlocal company is associated with less attention by locals, and more by nonlocals close to the acquirer; second, COVID-19 travel restrictions correlate with a drop in relative attention to nonlocal companies, especially in locations with fewer ights after the outbreak. Finally, local attention predicts volatility, bid-ask spreads and nonlocal attention, not viceversa. These findings are consistent with local investors having an information-processing advantage. |
| Keywords: | attention, retail investors, local investors, distance, news, liquidity, volatility. |
| JEL: | D83 G11 G12 G14 G50 L86 R32 |
| Date: | 2021–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:630&r= |
| By: | Bruno Morando (Department of Economics, Trinity College Dublin); Carol Newman (Department of Economics, Trinity College Dublin) |
| Abstract: | Resource misallocation has been identified as an important source of aggregate productivity loss, yet to date there is a notable dearth of studies exploring the nature and extent of misallocation in the agricultural sector, despite the fact that it continues to receive significant government supports. In this paper, we analyse resource misallocation in the agricultural sector of the European Union with the aim of quantifying the impact of capital misallocation on aggregate productivity and disentangling its sources. We find that misallocation contributed to a 30 percent loss in productivity in the sector between 2001 and 2010. We can attribute about one third of this loss to distortionary government subsidies which disproportionately benefit relatively less productive farms. We find no evidence that the decoupling reform of the CAP in the mid-2000s reduced the distortionary effect of CAP subsidies on the allocation of capital. Our results provide an important benchmark for understanding misallocation in the context of a modern developed agricultural sector and other industries that benefit from potentially distortionary government supports. |
| Keywords: | Resource misallocation, productivity, subsidies, agriculture |
| JEL: | D22 D24 O13 Q12 Q18 Q28 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep0221&r= |
| By: | Senran Lin |
| Abstract: | This paper studies the advance-purchase problem when a consumer has reference-dependent preferences in the form of Koszegi and Rabin (2009), in which planning affects reference formation. When the consumer exhibits plan revisability, loss aversion increases the price at which she is willing to pre-purchase. This implies that loss aversion can lead to risk-seeking. Moreover, I endogenize the seller$'$s price-commitment behavior in the advance-purchase problem. The result shows that the seller commits to his spot price even if he is not obliged to, which was treated as a given assumption in previous literature. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2110.14929&r= |
| By: | Davide Furceri; Mr. Romain A Duval; Marina M. Tavares; Raphael Lee |
| Abstract: | We show that firms’ market power dampens the response of their output to monetary policy shocks, using firm-level data for the United States and a large cross-country firm-level dataset for 14 advanced economies. The estimated impact of a firm’s markup on its response to a monetary policy shock is large enough to materially affect monetary policy transmission. We also find some evidence that the role of markup in monetary policy transmission, while independent from other channels, is greater for firms whose characteristics — notably size and age — are likely to be associated with greater financial constraints. We rationalize these findings through a simple partial equilibrium model in which borrowing constraints amplify disproportionately low-markup firms’ responses to changes in interest rates. |
| Keywords: | Monetary policy; interest rates; imperfect competition; market power; markups; monetary policy transmission; monetary policy shock; responses to change; firms' market power; firms' response; Central bank policy rate; Competition; Global |
| Date: | 2021–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/184&r= |
| By: | Pranvera Shehaj; Alfons Weichenrieder |
| Abstract: | The paper discusses the effects of the corporate tax on local R&D expenditures by multinational enterprises (MNEs) when income from intellectual property (IP) may or may not benefit from a special IP regime. Our model shows that an increase of the standard corporate tax may have positive effects on the R&D expenditures in the country that carries out the corporate tax increase. The possible positive R&D effect results from a tax asymmetry: not all R&D returns are subject to the higher tax. First, since R&D creates a public good within the MNE, some of the R&D benefit is taxed at other countries’ tax rates that are not subject to the tax increase. Second, some of the R&D benefits are taxed at a lower IP regime tax rate. Therefore, a higher corporate tax, which increases value of the cost deductibility of R&D, may actually foster R&D. This expectation is empirically supported by country-by-country R&D data of U.S.-owned subsidiaries for countries that have an IP regime. |
| Keywords: | corporate income tax, R&D, intellectual property regimes, patent box, international profit shifting |
| JEL: | H25 H26 O30 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9397&r= |